· requires banks to
offer basic transaction accounts that are free from account keeping
fees and penalty fees for the actions of third parties, and that
limit other fees to a level sufficient to recover the cost to the
bank of the penalised conduct;

· provides that
transactions at a bank's own-branded ATMs are to be free of charge,
and caps charges for the use of a bank's ATMs by customers of
another authorised deposit-taking institution (ADI) at the cost of
service provision;

· requires ADIs to
offer 'fixed interest gap' loans and mortgages with an interest
rate fixed at a negotiated margin above the institution's cost of
funds; and

· caps mortgage and
loan exit fees at a level sufficient only to recover the cost to
the lender of the early termination, and requires that exit fees
are mentioned in advertising and included in mortgage contracts in
a uniform way to ensure customers are aware of them when deciding
whether to sign the contract.

NOTES ON
CLAUSES

Clause 1 - Short
Title

This is a formal provision
specifying the short title.

Clause 2 -
Commencement

The Bill's provisions are to
commence the day after the Bill receives Royal Assent

Clause 3 -
Schedules

This clause provides that an
Act that is specified in a Schedule is amended or repealed as set
out in that Schedule, and any other item in a Schedule operates
according to its terms.

Schedule 1
- Amendments to the Banking Act 1959

Part 1 - Conditions on
banks' authorities

Item 1 - Basic accounts
and ATM fees

Item 1 inserts a new section
9AA into the Banking Act.

Subsection 9AA(1) provides
that the Australian Prudential Regulation Authority (APRA) must
vary banks' section 9 authorities to give effect to this section
within 30 days of the Bill commencing operation.

Subsection 9AA(2) introduces
the requirement for banks to offer basic accounts (9AA(2)(a)) and
an obligation upon banks to make their customers and prospective
customers aware of these accounts.

Subsections 9AA(3) and (4)
describe basic accounts. Paragraphs 9AA(3)(a)-(d) detail the
mandatory minimum features of basic accounts, while paragraph
9AA(3)(e) prohibits ongoing service fees and penalty fees for the
actions of third parties. Subsection 9AA(4) provides that the
relevant actions of third parties are to be detailed in
regulations. It is envisaged that they will include
transgressions over which the account holder has no control, such
as inward cheque dishonour.

Some fees are still permitted
under subsections 9AA(5) and (8), as discussed below, but paragraph
9AA(3)(f) provides that any attempted transaction that will result
in the imposition of these fees must first trigger a real time
warning to the customer and the opportunity for the customer to
rescind the transaction. This is akin to the automatic
warnings that are presently given to customers before they are
charged for the use of an ATM.

Subsections 9AA(5) and (6)
relate to penalty fees for breach of contract for basic account
holders. Such fees may not be levied unless they have been
approved by APRA (9AA(5)), and APRA may only approve fees that have
not been imposed for the actions and transgressions of third
parties and are not greater than the reasonable costs incurred by
the bank as a result of the breach (9AA(6)).

Subsections 9AA(7)-(9)
introduce restrictions on the charges banks may levy for the use of
their ATMs, or for the use of other ATMs by their customers.
These restrictions apply to all banking customers, not only those
with basic accounts. Under these rules, a bank may not charge
its customers for the use of the bank's own ATMs (9AA(7)).
Banks are also not permitted to charge their customers for the use
of any other ATM (9AA(8)(a)), or to charge non-customers for the
use of their own ATMs (9AA(8)(b), unless the fee has been approved
by APRA. Subsection 9AA(9) provides that APRA may only
approve such fees if it is satisfied that they do not exceed the
banks' reasonable costs of providing the ATM service.

Subsection 9AA(10) provides
for regulations to facilitate APRA's collection of information from
banks to enable it to calculate their reasonable costs incurred as
a result of breaches of contract by basic account holders and the
provision of ATM services to non-customers. APRA will require
this information to discharge its duties under paragraph 9AA(6)(b)
and subsection 9AA(9).

Subsection 9AA(11) provides
definitions of terms used in section 9AA.

Part 2 - Fixed interest
gap loans and mortgages

Item 2

Item 2 inserts a new section
9AB into the Banking Act.

Subsection 9AB(1) provides
that APRA must vary banks' section 9 authorities to give effect to
this section within 30 days of the Bill commencing
operation.

Subsection 9AB(2) introduces
the requirement for ADIs to offer 'fixed interest gap loans and
mortgages' to their customers and prospective customers
(9AB(2)(a)), including when selling such products through a third
party. Paragraph 9AB(2)(b) requires ADIs to develop a formula
for calculating their cost of funds, submit it to APRA for approval
(9AB(3)), which APRA may only grant if it is satisfied that the
formula will yield a result that does not exceed the ADI's cost of
funds (9AB(4)). Subsection 9AB(7) provides for regulations to
be made permitting the collection of cost information and other
data from ADIs so APRA is able to determine whether an ADI's
formula for calculating its cost of funds is adequate.

As with variable rate loans
and mortgages, fixed interest gap products will need to be
recalculated periodically so that customers benefit from reductions
in the ADI's cost of funds and the ADI is able to maintain its
margins if its costs increase. Subsection 9AB(5) provides for
APRA to issue guidelines that will identify the triggers for
recalculation.

Subsection 9AB(6) defines
various terms used in section 9AB.

Part 3 - Exit fees on
mortgages

Item 3

Item 3 inserts a new section
9AC into the Banking Act.

Subsection 9AC(1) provides
that APRA must vary banks' section 9 authorities to give effect to
this section within 30 days of the Bill commencing
operation.

Subsection 9AC(2) introduces a
requirement for ADIs that offer variable rate loans and mortgages
and fixed interest gap loans and mortgages (including where these
products are sold by third parties) to submit a formula to APRA
linking any early termination fees to the actual and reasonable
costs sustained by the ADI as a result of the early termination
(9AC(2)(a)). Subsection 9AC(6) provides for regulations to be
made permitting the collection of cost information and other data
from ADIs so APRA is able to determine whether an ADI's formula for
calculating the cost of an early termination is adequate.
ADIs are also required to include the early termination fee under
the uniform heading 'Early Repayment Charges' in the mortgage/loan
contract (9AC(2)(b), and notify customers of the existence of the
charge when advertising these loans/mortgages
(9AC(2)(c)).

Subsection 9AC(3) imposes the
same obligations upon ADIs with respect to fixed rate loans and
mortgages, with the sole exception that paragraph 9AC(3)(b)
requires that the early termination fee is to be expressed in the
loan/mortgage contract as a plain English explanation of how the
charge will be calculated rather than a figure. This is to
accommodate the fact that ADIs are unable to anticipate what an
early termination of a fixed rate loan or mortgage will cost them
in advance.

Subsection 9AC(4) provides for
APRA to issue guidelines regarding an ADI's ability to vary its
formula for calculating the early termination fee.

Subsection 9AC(5) defines
'early termination fee' for the purpose of this section.